Abstract and Keywords
Discretionary begging-bowl financing does not work well for disasters—it is too slow, leads to a fragmented response, and encourages underinvestment in risk reduction and preparedness. To get around this problem, generous people and their political leaders should think like are an insurance company. This means making trade-offs over who or what to protect before disasters. This process is not easy, but it is necessary for a system with good incentives. Leaders should focus on providing protection, not relief, and using financial incentives to encourage others to own up to and finance their share up front. The international humanitarian system is still needed, as a back-up when plans fail. It should not be the first line of defence for natural disasters.
The evidence is still growing, but what is already clear is that a better way of dealing with disasters is possible. Three things are essential: a coordinated plan for post-disaster action agreed in advance; a fast, evidence-based decision-making process; and a funding model, based on risk financing principles, to credibly lock in the plan and rules.
Why are We Even Talking about This?
Disaster losses are huge, averaging US$250–$300 billion a year, according to the United Nations. The number of deaths, serious injuries, and health issues arising from disasters climbs into the hundreds of thousands each year. Losses are trending up, partly from economic growth and urbanization and partly from climate change—but also because development is often not carried out in a risk-informed way. Cities are built along fault lines; schools are erected without regard to the most basic building codes; roads are constructed in areas where they will be washed away by a minor flood; and houses are built on flood plains.
Earthquakes, droughts, floods, storms, and epidemics are natural events, but the number of deaths or the amount of damage depends on the actions of individuals and governments both before and after those events. When extreme natural events turn into disasters, the response from governments and the international community is often generous. This generosity is driven in part by the feeling that it is right and proper to support disaster victims and in part by the recognition that it makes for good politics. In fact, disaster relief is often a media (p.100) circus—a time for national leaders to get visibility, particularly in election years—and it makes for good press releases by international donors.
The actual response to a disaster, however, is typically too late, too fragmented, and too unreliable. This is begging-bowl financing at its worst, with farmers, homeowners, and local governments pleading for help from the national government, and the national government making appeals to international donor governments and other benefactors. What does all this mean? Planning for disaster response does not begin in earnest until after the disaster, and that is too late. Nobody works out who will do what and who will pay for what until the crisis is unfolding, leading to a fragmented, inefficient response. And if media or political attention moves elsewhere, or if national governments or international donors have already spent their annual disaster contingency budgets, what help is received may not be enough.
The ambiguity over who will be generous, for what, and how much they will contribute produces poor incentives for planning. Why would a local government take time and care to prepare a serious disaster plan if it is not clear whether it will be funded or implemented by the central government until after the event? Why would a government in a poor country set up response mechanisms beforehand if it is unclear whether the funding will arrive to implement those mechanisms, or, even when it does come, whether the benefactor will want to decide what to spend it on? Ambiguity also leads to a system with extremely poor incentives for risk reduction. Why would a municipal government invest in hospitals if the national government could always be persuaded to pay for most of any disaster-related damage? Why would a homeowner buy disaster insurance or invest in a home away from the flood plain if compensation is paid for every flood? Why would farmers invest in better water management if agricultural loans are cancelled whenever there is a minor drought? Why would a government invest in alternative livelihood opportunities in drought-prone areas if donors will bail them out when there is a serious drought?
(p.101) What is the Solution?
There is nothing wrong with funding for disasters based on generosity. Indeed, it is to be applauded. However, it is much better for generous governments and donors to acknowledge and clarify their generosity before any disaster—that is, for benefactors to become leaders. They should be clear about what risk they own and what risk belongs to others.
What does this mean for planning? It means thinking and preparing like an insurance company. It means being upfront about who or what governments and their partners will protect and against what, how much others will have to pay, and what the conditions for protection will be. It means getting the right professionals in the room, working with each other and political leaders to develop a credible plan. It means investing in risk information to inform plans and in risk communication so that everyone understands the potential threat from natural hazards and values the protection being offered. It means investing in fraud-resistant data systems that can trigger automatic post-disaster action, turning early warning into early action. It means building up implementation capabilities so that relief and reconstruction can be implemented like clockwork. And it means working with bureaucrats to provide guidance on the thorny trade-offs over who or what to protect and with financial experts to assemble budgetary and financial instruments that credibly commit them to the plan.
All this is challenging, but it is possible. And it is already starting. Efforts are under way around the world to toss out the begging bowl and turn benefactors into leaders. Learning from the response to the Ebola outbreak and from responding to various recent natural disasters, international organizations and think tanks are changing their approaches to disasters so they can achieve better decision making and preparedness, and they are offering proposals, some consistent with ours. More pre-disaster financing instruments are becoming available.
(p.102) Nevertheless, most of the innovation is at the national level, where governments have begun to develop well-defined, pre-financed plans that will be implemented in the event of a disaster. These plans are not designed to cover everything that may be needed in the aftermath of a disaster, but they are simple enough for political leaders to communicate to their constituents—even in a sound bite if they must. No vague statements are made that all needing help will be covered. Rather, a credible commitment is made to responding decisively to protect pre-identified people or property in a specific way against specific perils. And countries are locked in using financial instruments, so that in the event of a disaster those instruments can be implemented quickly and decisively without any need for further debate or deliberation from political leaders. Where changes have been carefully evaluated, big improvements in response times and outcomes are evident.
What are the Challenges?
Four challenges stand out. If governments and their partners do not address each of these attempts to move away from the begging bowl, planning will be futile—just another bureaucratic exercise to gather dust in someone’s drawer. It is best, then, to address these four challenges head-on.
Making Difficult Pre-Disaster Trade-offs
Neither national governments nor international donors can afford to protect everyone against every possible disaster. For that reason, the difficult trade-offs should be made before disasters. Trade-offs are not easy, but they are already being made implicitly in the current system. Making explicit trade-offs before a disaster allows proper planning and instils good incentives in the system, but political leaders will need help in developing plans that can be sold to their constituencies.
The foundations of a credible plan could be an existing social safety net with the commitment, financing arrangements, and logistics to (p.103) expand it to a well-defined broader group when an extreme event of an intensity that would trigger an automatic response takes place. The social safety net could expect certain actions by those who would be part of the expanded coverage, such as registering before the event and perhaps making a financial contribution or taking some actions at the local community level to increase resilience to a crisis. Kenya’s Hunger Safety Net Programme is a good example of such a plan.
A credible plan for response and recovery after a storm or earthquake could specify how repairs to public infrastructure will be triggered and prioritized (with the financing plan agreed beforehand) and how for a specified period those who lost homes or livelihoods would be supported. It could also specify that homeowners would be expected to pay part of the cost of disaster insurance, which is conditional on following a basic building code if they want to be eligible for government support to rebuild their houses afterwards. Mexico’s National Disaster Fund (FONDEN) offers such a plan for public infrastructure.
Once there is clarity on who is being protected and against what and on who is paying, there may be difficult trade-offs over who will implement what. Again, this is difficult but necessary if the objective is coordinated, not fragmented, implementation.
Providing Protection, Not Relief
There is much political capital to be gained from being a benefactor. In fact, research on evidence-based electoral politics suggests that politicians have far more to win from focusing on disaster relief than on risk reduction and response preparation. But that does not bode well for planners setting out to convince politicians to come on board. So how can planners make their proposals politically attractive?
The trick is to help politicians explain to their constituents that planning is the route to providing protection: investing now, not just offering relief when things go wrong. By communicating the idea of protection, a politician can clarify what risk the government or agency owns and what risk it does not. Disaster relief is attractive politics, and (p.104) so the professionals must help political leaders ensure that protection becomes good politics, too.
Selling the focus on protection will be easier when the electorate and commerce are well informed about the future disaster risk. If nobody understands disaster risk, a political statement that people are protected will not be politically cost-effective, even if the benefits for people and the economy are overwhelming.
In some countries, better responses over time have become the norm following better preparedness and planning. For example, over many decades Japan has become a success story in which science has infused the public consciousness and led to good planning. The Japanese model offers strong motivation for investing in the communication of disaster risk information at all levels of society so that better, smarter, disaster risk management solutions are politically sellable and sustainable.
Getting Others to Pay Their Share
Governments and international donors should aim for coordinated, pre-financed defined plans, with clear responsibilities for coordinated implementation and a credible joint financing strategy, and not the current myriad of initiatives. Each country could have a small number of well-defined plans for different key risks, or one generic plan that can be adapted for different risks. For some risks, such as pandemics, a plan covering multiple countries may be appropriate. To make this work, all parties will have to be tied to the mast like Odysseus, and that will not be easy (see Chapter 3).
A requirement will be political courage and commitment by the key players involved. Indeed, politicians will have to care—for their people, for the poor—for all this to work. Leadership from a few important benefactors could go a long way towards changing the incentives of everyone else in the system, showcasing how contributing to defined, credible plans could be an attractive strategy for others. Governments and donors should not be shy about offering funding for precise plans conditional on others providing (p.105) co-financing, or plans in which they publicly announce that they will match contributions from others. Multilateral agencies such as the World Bank are already facilitating such co-financing solutions when they implement shock-responsive social safety nets financed through concessionary lines of credit. In such arrangements, the government pays part of the full economic cost and donors finance the remainder. It is hoped that more examples of this kind of scheme appear, with governments taking clear ownership of such arrangements. This is the trajectory for schemes such as Ethiopia’s Productive Safety Net Programme and Kenya’s Hunger Safety Net Programme.
Learning by Doing and Having a Backup
The evidence for changing the funding model and moving towards pre-financed, precise, credible plans is overwhelming. However, the evidence on what plans should look like is still emerging. Professionals will have to work together to put sensible, country-specific or problem-specific plans together and will need to learn by doing.
At the same time, dogma cannot replace reason. Rules-based plans sometimes go wrong, and reality sometimes takes even the most careful planners by surprise. For example, a precise plan might be designed for a drought and then there would be a flood.
For unforeseen events, national relief financed by begging bowls and the international humanitarian system, with their post-disaster assessment and principled deliberation, is actually the appropriate system to serve as a catch-all back-up. It is not, however, the best solution for natural hazards for which one can reasonably plan, because it asks for leadership too late, does not lead to a fast, coordinated response, and does not promote good incentives for risk reduction. Arrangements that target pre-disaster protection are better where possible, but arrangements that target post-disaster need are useful as a back-up. And the more the financing of this back-up can be pre-arranged between willing contributors, with clear rules and commitments, the more effective the back-up.
(p.106) Getting Started: Taking the First Steps
The process begins with generous people owning up to and clarifying their generosity before a disaster. Here are some steps that could offer a starting point.
First, one or more benefactors would lead the shift from begging bowls to well-defined, credible plans and would provide financial and political incentives for others to jointly pay into the plans. These benefactors could be national leaders, embracing precise plans as a way to give them more predictability about post-disaster support from donors and subnational governments and to promote good incentives for people and firms. Or they could be international leaders, as contributors to the humanitarian system, seeking to move away from a system filled with procrastination, appeals, and post-disaster strategic manoeuvring and towards a system in which their political contract with other governments and people is clarified in a way that promotes good incentives to invest in risk reduction. Or it could be a combination of national and international leaders.
Second, national governments would own the development of precise, credible plans as part of an iterative dialogue with risk modellers, communicators, implementers, bureaucrats, and financiers. This process would best be led by government, but in collaboration with others in order to work jointly towards a more efficient, faster, and less costly system to address disaster risks, including response preparedness but also risk reduction. Politicians will need to find ways to clarify to their citizens what the protection offered will entail. They will also have to specify the efforts government, firms, and citizens would be expected to make to ensure that development is more risk-sensitive and resilient.
Third, implementing agencies would change the ways in which they plan. This means actively engaging with others to develop well-defined, credible plans that have political buy-in and are fully financed up front, and then to ensure that there will be the capacity to implement them. (p.107) And they should be willing to agree on coordination, decision, and implementation structures beforehand.
Finally, financiers would need to be at the table from the start to help design, cost, and implement disaster risk financing strategies for pre-financing these well-defined plans. They should also help advise on the balance between risk retention and risk transfer in the funding of the plans. Crucially, as explained in Chapter 5, they should help all contributors to the plan move towards pre-disaster financing instruments—that is, from emergency budget reallocations, emergency debt issuance, and begging bowls towards well-managed reserve funds, lines of contingent credit, and the plethora of insurance and reinsurance instruments that are currently available on the market or through regional organizations such as the Caribbean Community, Pacific Community, and African Union.
Dulling Disasters, Now!
This is a good time to prepare better for disasters and sort out their financing. Humanitarian disasters are unacceptable across the world, and, faced with forecasts of a rising number of extreme events, the world should be better prepared to offer reasonable protection at the lowest possible cost. But much work has yet to be done. Globally, nationally, and locally, as governments or as part of the global humanitarian system, benefactors of all stripes would do well to think and act more like insurance and reinsurance companies. Each actor should define better who and what it will protect—and rebuild the system from these contingent liabilities and their gaps.
Today’s disasters need leaders and humanitarians who do not just respond emotionally and energetically to crises, but who plan beforehand with clear and strong commitment devices, using political, legal, and financial mechanisms based on specific triggers for action and financing. Learning from research and resisting the song of the Sirens, they can make sure the system works. The new approach may result in (p.108) less airtime for disasters, appeals, emotions, and adrenaline, and more tutorials on the principles of insurance. By dulling disasters—as in making them less intense—we may make them a little dull and boring as well. But that will be worth it.
1. Discretionary begging-bowl financing does not work well for disasters. It is too slow, leads to a fragmented response, and encourages underinvestment in risk reduction and preparedness.
2. To get around this problem, generous people and their political leaders should own up to and clarify who or what they will protect and against what and how much others will have to pay. They should be willing to think as if they are an insurance company.
3. This means making trade-offs over who or what to protect before disasters. This process is not easy, but it is necessary for a system with good incentives.
4. Leaders should focus on providing protection, not relief, and using financial incentives to encourage others to own up to and finance their share up front.
5. The international humanitarian system is still needed, but it should act as a back-up when plans fail. It should not be the first line of defence for floods, earthquakes, droughts, storms, or pandemics.